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Understanding the Key Terms in a Commercial Lease

On behalf of Michael L. Feinstein, P.A. posted in Real Estate on Tuesday, May 24, 2016.

Commercial leases are complex legal documents that are often initially drafted with the landlord's best interests in mind. As a prospective tenant, it is critical to protect yourself by not only ensuring that you understand what your lease says, but also negotiating where necessary to avoid getting locked into an unfavorable long-term deal.

This article is the first in a series of articles we intend to post covering the key terms in commercial leases. Here, we cover terms that are both some of the most basic and some of the most important for commercial tenants.

1. Use of the Premises

The "use" clause spells out what you, as the tenant, can and cannot do on the leased premises. Use clauses can vary in specificity, and as a tenant it is critical to make sure that the lease does not prevent you from using the premises as you intend. Negotiation of these clauses will often be fairly straight-forward; however, if you have unique requirements or the lease is poorly written, this is one of the first clauses in your agreement you will want to address.

2. Exclusivity

Exclusivity is also a critical issue, particularly for retail locations. Imagine if you opened a pizza shop in a strip mall, and then shortly after you found out that your landlord had signed a lease with a competing chain for a space a few doors down. If you do not pay careful attention to your lease's exclusivity clause, your landlord could do exactly that. Landlords will often fight against granting exclusivity in order to retain maximum flexibility for signing new tenants; but, as a tenant, obtaining at least some level of exclusivity can be critical to the success of your new location.

3. Initial Term and Renewal

The initial term and renewal rights will often be points of disagreement for landlords and tenants as well. Landlords will frequently push for longer terms because a long-term commitment means a steady revenue stream for years to come. However, as a tenant, a long-term commitment means more risk and less flexibility. What if this isn't the right location for you? Or, what if you grow faster than you anticipated and need a larger space before your lease term ends? Negotiating for a shorter initial term with renewal options may be in your best interests.

4. Assignment and Subleasing

Finally, you will want to look closely at your assignment and subleasing rights as well. But, don't be surprised if you don't see any. Many standard lease agreements will prohibit assignment and subleasing by the lessee. While your landlord may not be willing to grant free assignment and subleasing rights (and understandably so), you may be able to negotiate for limited rights - such as the right to assign if you sell of your business or the right to sublease if your sublessee meets certain standards.

If you are preparing to enter into a commercial lease, it is strongly in your best interests to hire an experienced real estate attorney who can help you understand and negotiate the terms before you sign on the dotted line. At Michael L. Feinstein, P.A., we can help. To speak with a commercial real estate attorney at our offices in Fort Lauderdale, call (854) 767-9662 or contact us online today.

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